Amazon’s AWS Grows Fast in Gov’t, Says Pac Crest; ‘Aurora’ Shines

Despite all the Brexit hand-wringing today, and a second day of massive selling of stocks, Amazon.com (AMZN) did alright, closing down better than average, falling $7.60, only 1%, to close at $691.36.

Perhaps the shares were helped by an upbeat note published by Pacific Crest’s Brent Bracelin, who has an Overweight rating on the shares, and an $820 price target, and who believes the company’s seeing a sharp uptick in its “higher value” offerings, such as its “Amazon Aurora” database.

The basis of Bracelin’s note is Amazon’s conference last week in Washington, D.C. for public-sector use of Amazon’s cloud computing AWS services, which had 7,000 attendees, he writes, called “AWS Public Sector Summit."

The big picture is that Amazon’s adding a billion in revenue to AWS each quarter, helped by government and other contracts:

We estimate that strong government and large enterprise adoption of AWS, coupled with continued strength in new cloud-native applications, should drive nearly $1 billion of incremental cloud revenue for AWS each quarter this year. This would be the equivalent of building an Oracle Cloud every six months. We estimate every $1 billion of cloud adoption at AWS could drive an incremental $0.37 in EPS to Amazon overall.

He notes government is rapidly adopting functions of AWS though Amazon’s “GovCloud”:

AWS GovCloud is an isolated AWS region that was formed in August 2011 for customers with strict regulatory and compliance requirements and sensitive data or workloads. This includes U.S. government agencies, although it is available to qualified organizations outside of the government in regulated industries, such as private sector companies, nonprofits and educational institutions. GovCloud addresses the heightened security and regulatory requirements via isolation from other regions, separate identity access management, and a dedicated GovCloud management console.

Bracelin offers a timeline of how new features have come into GovCloud (click on the image to see it larger):

Some of that’s being helped by government contractors such as CSRA:

CSRA Inc., a provider of next-generation IT solutions and professional services to government organizations, separated from CSC in late November 2015 and simultaneously merged with SRA International. CSRA's case study is a powerful example of how large enterprises are embracing public cloud, as a combination of AWS and SaaS, as an alternative to on-premise infrastructure. Since the CSRA spin-merge, it has ported 40% of workloads to public cloud or SaaS, supporting critical IT capabilities and business systems like human capital management, payroll and management servers.

Bracelin notes some points made in the keynote by Amazon senior vice president Andy Jassy. Among his points was that companies are building things on top of services, writes Bracelin, not server computers:

The 70-plus services (and growing) offered on AWS means companies do not have to reinvent the wheel. An example is Quantas Airlines, which built a hotel booking site built in just a couple of months. This would have taken 3x longer and cost 1.7x as much if developed as on-premise software. The Singapore Post built an e-commerce business on AWS that now represents about one-third of revenue; it was built in about half the time and at half the cost it would have taken on-premise.

Among those services is the Amazon Aurora database, which is growing fast:

Aurora is an example of cloud-native applications that should help drive incremental revenue. Aurora was already AWS' fastest-growing service, and he pace of Aurora adoption has continued to increase meaningfully. Roughly 7,000 databases have migrated since the beginning of the year. The weekly rate of migrations has more than tripled since March. While this growth is astonishing and Aurora has already surpassed adoption of Redshift (a cloud data warehouse), it still has only a tiny foothold in the $34 billion database market. New features and service additions have accelerated, and AWS plans to launch nearly 1,000 additions this year, up from 722 in 2015. Yet the total number of features to come will continue to grow, according to the company. Some of the high-growth areas in its existing feature set, according to the company, are the ECS container offering, Lambda for serverless computing, Redshift for data warehousing and Aurora. Additionally, AWS hinted that some new machine learning, deep learning and AI services would be available to customers in the coming months.

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